Given all the chat about Hummingbird’s recent acquisition ofthe...

Given all the chat about Hummingbird’s recent acquisition ofthe nearby Kouroussa deposit from Cassidy Gold, I thought I would do a bit of areview and draw some conclusions relative to PDI.

Kouroussais a collection of deposits totalling 1.1Moz at approximately 3.0g/t (not JORCCompliant) located nearby to PDI (approximately 15km away). It is within the Siguiribasin but likely affected by different local geological controls. It’s alsoworth noting that VRC acquired the tenements West and East of PDI in May 2020and have approximately doubled since.

Kouroussa was acquired by Hummingbird Resources as part oftheir plan to become a multi-asset gold producer, with a view to develop thedeposit into a 100,000 oz/annum operation. It also includes some siteinfrastructure with a replacement value (according to Hummingbird) of $20m,although it’s not clear which currency this is in.. The terms of the transactionwere:

·£16m acquisition cost (Assuming 1.80GBP = 1AUD = 28.8mAUD) comprising;

o£10m (18mAUD) upfront payment (via new Hummingbird shares)

o£6m (10.4AUD) deferred consideration contingent upon Reserve growth or material processed

o2% NetSmelter Revenue on all gold produced above 200koz up to 2.2Moz

The transaction was completed at an implied valuation of$22/oz (more on this later).

The deposit itself quite different to what we have at PDI,appearing to be mostly high grade veins, as opposed to the consistent moderategrade seen at NE Bankan. A selection of results, split over 4 differentprospects is included below (taken from Hummingbird’s latest corporatepresentation).

There are some impressive hits here, however my keyobservations relative to PDI are:

-Results are split across multiple deposits

-Results are all at depth (vs PDI from surface)

-Results indicate high grade veins, rather thanconsistent moderate grade

In summary, PDI’s deposit would be much more economic due to itsconsistent grade in a broad mineralised zone. The best evidence of this is theestimated strip ratio of Kouroussa of 12:1 Waste:Ore (taken from Hummingbird’soriginal announcement). I believe PDI’s strip ratio will be closer to 1.0 dueto the mineralised hits from surface, making it a far more attractive deposit,not withstanding the fact it will likely have a lower overall grade.

In terms of transaction price, it is useful to estimate theamount of ounces PDI is sitting on. I know there are varying opinions aroundthe forum, but I would be comfortable based on the current drilling to estimateas below:

	Metric	Value	Rationale
1	Width	160	Drill spacing is 80m – looks like mineralisation between 3 holes on average
2	Length	500	Far north and south does not appear economic
3	Depth	100	Probably upside here – confirmed 100m depth is mineralised
4	SG	1.5	Conservative to account for saprock at surface
5	Grade	1	May be conservative given consistent high grade hits
6	G/tr. Oz	31

This gives an estimate of approximately 400k oz. Whilstthere is significant upside potential, based on current information I would notbe betting on anything more than that. Also worth noting that the Bankan CreekDD is absolutely not economic and I would not include any ounces from thisdeposit in any valuation estimates.

In terms of the $22/oz, I’m assuming this is quoted as USD(given the company is based in London, and not quoting pounds it seems logical).Hummingbird included an interesting graphic which compares acquisition cost ona $/oz basis. I’m not a huge fan of this metric as it is not an apples toapples comparison and I am only familiar with a few transactions listed, but candraw some parallels to the Gruyere transaction in particular (as I worked onthis job in its infancy).

50% of Gruyere was purchased at $81/oz by Gold Fields a fewyears back now. Gruyere was significantly more developed at this point and inthe worlds most attractive mining jurisdiction with a strip ratio circa 2.7.Happy to have others weigh in on the other transactions, but the best conclusionI can provide is PDI should be well below $81/oz, but greater than $22/oz. Onthe above basis, I would value NE Bankan at between 8.5 – 31.3m USD, withgreater likelihood of it being on the low side. Let’s assume $40/oz, making it15m USD, or ~22m AUD.

So where to from here?

Personally I have been disappointed with the share pricetrajectory, however based on the above analysis it seems quite justified. Thetwo options I am considering are:

1)Pray for exploration upside to increase the valuationby expanding the resource

2)Hold to a BFS based on strong DCF valuation

For option 1, I have looked at the cumulative effects ofexploration upside that I think are reasonable, tabulated below, with a valuationdriven by the $40/oz metric.

	Upside	Impact to Ounces (oz)	Implied Ounces (oz)	Impact to Valuation (AUD m)	Implied Valuation (AUD m)
1	Base		387k		12m
2	Grade flex to 1.5g/t	+193k	580k	+11m	33m
3	Depth increased to 200m	+580k	1,160k	+33m	66m
4	Strike increased to 700m	+464k	1,625k	+26m	93m

Now for option 2, I have done a very rogue DCF with thebelow inputs

Capex = $90m USD (from Hummingbird presentation)

AISC = $700USD/oz

Gold Price = $1800USD/oz

Run rate = 100k oz /annum

Discount Rate = 10%

On a base case, 4 year project + 1 year construction (withno exploration upside) I get an NPV of 243m USD or 350m AUD. I think that600koz total is easily achievable, which gives an NPV of 366m USD or 520m AUD.

The DCF and comparable transaction analysis tell verydifferent stories, however as these are very different orebodies I am electingto stick to the
conclusions of the DCF analysis and continue to hold for themedium term.

Useful links for others:

Signing of Sale and PurchaseAgreement for the KouroussaGold Project & Exploration Highlights

https://polaris.brighterir.com/public/hummingbird/news/rns/story/rdz579w

Acquisition of the KouroussaGold Project

https://polaris.brighterir.com/public/hummingbird/news/rns/story/rmo2q5x

Hummingbird CorporatePresentation

https://www.hummingbirdresources.co.uk/wp-content/uploads/2020/06/Corporate-Presentation-June-2020.pdf